Dow 10,000!!!

The Dow climbed past the 10,000 mark yesterday, the first time it touched the level since October last year, after the first of the big banks reported strong profits for the third quarter. But it doesn’t quite feel like there’s much to be happy about. Typically, breaching this level from below serves as a good technical indicator that stocks will continue moving to the upside. With some strong earnings on their way, particularly for banks, this move higher is just probably not done yet. And it’s not good. This goes back again to the issue of the huge market rally since March 9 lows and maybe even being on the green year-to-date, which are not really backed by strong fundamentals. Unemployment is still rising, consumer demand is not yet picking up, and well, the move’s just been too fast too soon. What all this means is, 10,000 isn’t good this time. Any sort of relief or achievement we feel from this has to be translated to caution and fear. We’re just being set up for an even bigger, harder fall.

Let me post below some ways people took note of yesterday’s move when the Dow closed at 10,015.

From the Wall Street Journal:

Reaction this time was more muted than the first time the Dow closed above the 10000 mark, on March 29, 1999, when traders popped Champagne and passed around “Dow 10000” baseball caps. “People don’t believe it, they don’t trust it, they are nervous, they are anxious,” said Andy Brooks, head of stock trading at money-management group T. Rowe Price. “Most of us can’t believe the year we have just been through, where you made and lost so much money.”

The Dow rose 144.80 points, or 1.47%, its best point and percentage gains since Aug. 21. Other stock indexes posted similar gains. Despite the milestone, analysts pointed out it means the market is no higher than it was 10 years ago. In fact, the Dow has moved above the 10000 mark 25 times before now, only to fall back to four-digit territory each previous time.

And this probably led Barry Ritholtz to point out what was probably the best Dow 10,000 investment:

Given the power of the US markets, Asia couldn’t help but catch the good mood that surrounded Wall Street yesterday. The Nikkei closed 2.1% higher at 10,272.62, supported by the 2.5% gain of auto maker Honda Motor Co. Meanwhile, shares in Hong Kong were up 1.6% and those in Shanghai increased 0.8%. Positive outlook from Intel which also reported yesterday helped tech stocks in Taiwan, leading the country’s stock index to rise almost 1%.

And some bout of skepticism from Clusterstock:

We are far from out of the woods. Large companies are still laying off employees. When we cross the 10% unemployment line, consumer spending (now down to 70% of GDP) may contract even further. It probably should. Consumer spending in the UK is 65% and in China it’s only 40%.

Haven’t we learned something from this crisis?? Wall Street sold the world worthless securities, trillions of dollars of wealth evaporated, and now Wall Street is cheering this “new” bull market. Now the bulls say it’s all okay again?!

And here’s an interesting bit from a CNBC article, which says people get tired around the 10,000 level – another cautious tone to yesterday’s biggest move since August 21:

Andrew Burkly, chief technician at Brown Brothers Harriman currently, cites the same historical patterns seen in the the Dow at 100 in the 1930s and 1,000 in the 1970s. “These long secular bear markets have tended to gravitate around the 3 big number milestones,” said Burkly.

As for the fundamental reason behind this gravitation to round numbers, you have to think for a moment what happens around these levels. The big round number catches the eye of the retail investor who wakes up to it on his or her doorstep (or e-mail box) in the morning. He or she then reasons that stock investing must be back and starts to move money back into equities.

With the ‘Dow 10,000″ headlines and low bond yields, there’s a lot of money that could rotate into stocks soon. The kicker is that the pros on the street will then sell into the retail flow. So we will see an initial push through Dow 10,000 and then a fade as the retail rotation dries up and hedge funds take their gains.

Today, two other big banks, Citi and Goldman Sachs are scheduled to report their earnings. With the markets higher from the last quarter they reported, these banks are perhaps to report strong earnings yet again, driven primarily by the performance of their investment bank arm. Although between the two, Citi is in a less stellar position given its exposure to the consumer market. JP Morgan yesterday showed higher provision for loan losses; Citi shouldn’t be different. At the moment, Dow futures are up very slightly. It could be the market’s way of standing in the middle and deciding the direction of today’s trading – up if the two report better earnings than last quarter or down if it shows otherwise.